United Continental (UAL 5.50%) may be the most hated airline in America: It received far more passenger complaints than any other airline last year. Yet the carrier made some customers very happy last Thursday when it accidentally posted some fares at ridiculously low prices, charging just $5 round-trip on many flights!
The mistake fares were only available for a couple of hours, according to a United spokesperson. Yet that was enough time for many people to discover them, especially once the news began to spread via Twitter and other channels. Luckily for them, United decided to honor the tickets rather than try to cancel them en masse.
Brief error
The glitch in United's system caused it to charge only the 9/11 security fee of $2.50 per flight leg, according to Rick Seaney, CEO of FareCompare.com. In other words, United will not keep any revenue from the tickets it accidentally sold.
Since most customers should have realized that the company would not deliberately give away tickets in mass quantities, United could have attempted to cancel the reservations. (Some airlines have successfully canceled "mistake" fares in the past.) However, doing so would have inevitably led to bad press -- and possibly a lawsuit or fine.
Small potatoes
United ultimately decided to honor all of the tickets it sold on Thursday. While the company has not yet disclosed the number of free or almost-free tickets it sold, they were probably few enough in number that the financial hit will be manageable.
United sells approximately $90 million of tickets per day on average, according to Bloomberg Businessweek. The "mistake fares" were available for just two or three hours, and covered only a handful of routes. On the flip side, once people started to notice the abnormally cheap fares, booking volumes picked up. A number of media outlets interviewed United customers who had purchased lots of tickets after seeing the price or told friends and co-workers about the great deals.
Even with the higher-than-normal booking volumes, it seems unlikely that the financial cost to United of the glitch was more than a few million dollars. (It may even be a little less.) Given that United is trying desperately to become the world's leading airline -- "the airline customers want to fly" -- the PR cost of canceling the tickets almost certainly outweighed the short-run cost of giving away a bunch of tickets.
Moving forward
For United shareholders, Thursday's snafu was probably a non-event. While United lags behind rivals like Delta Air Lines (NYSE: DAL) from a profitability perspective, it still earns hundreds of millions of dollars of profit annually. In other words, even if United's gaffe cost the company a few million dollars, that's just a drop in the bucket over the long haul.
While this particular incident may not be too worrisome for United shareholders, the company still looks like a dubious investment. The average analyst estimate for 2013 earnings has dropped by more than 10% over the last 90 days, and 2014 earnings estimates have been falling as well. While United's fortunes may be improving, it still has not experienced a robust turnaround.
